United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 33-75154
J.B. POINDEXTER & CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0312814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Louisiana
Suite 5400
Houston, Texas
77002
(Address of principal executive offices)
(Zip code)
(713) 655-9800
(Registrant's telephone number, including area code)
Not Applicable
(Former name,former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
There were 3,059 shares of Common Stock, $.01 par value, of the registrant
outstanding as of November 13, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------ -------------
(Unaudited)
<S> <C> <C>
Current assets
Restricted cash ................................................. $ 1,057 $ 3,191
Accounts receivable, net of allowance for doubtful accounts
of $797 and $1,426 , respectively ........................... 33,728 28,401
Inventories, net ................................................ 31,573 29,960
Deferred income taxes ........................................... 2,913 2,277
Prepaid expenses and other ...................................... 597 1,102
--------- ---------
Total current assets ........................................ 69,868 64,931
Property, plant and equipment, net ................................... 38,888 41,085
Net assets of discontinued operations ................................ 13,184 31,449
Goodwill, net ........................................................ 15,532 16,177
Deferred income tax .................................................. 3,528 4,963
Other assets ......................................................... 5,023 5,321
--------- ---------
Total assets ................................................ $ 146,023 $ 163,926
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Short-term debt ................................................. $ 414 $ 428
Current portion of long-term debt ............................... 1,035 1,376
Borrowings under revolving credit facility ...................... 17,722 39,763
Accounts payable ................................................ 14,644 9,948
Accrued compensation and benefits ............................... 4,621 3,837
Accrued income taxes ............................................ 12 (454)
Other accrued liabilities ....................................... 13,549 10,615
--------- ---------
Total current liabilities ................................... 51,997 65,513
--------- ---------
Noncurrent liabilities
Long-term debt, less current portion ............................ 101,470 102,101
Employee benefit obligations and other .......................... 1,084 1,054
--------- ---------
Total noncurrent liabilities ................................ 102,554 103,155
--------- ---------
Commitments and contingencies
Stockholder's deficit
Common stock and paid-in-capital ................................ 16,485 16,485
Accumulated deficit ............................................. (25,013) (21,227)
--------- ---------
Total stockholder's deficit ................................. (8,528) (4,742)
--------- ---------
Total liabilities and stockholder's deficit ................. $ 146,023 $ 163,926
========= =========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited- in thousands except share and per share amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net sales ..................................... $ 87,914 $ 73,390 $ 268,317 $ 242,423
Cost of sales ................................. 73,870 60,663 224,742 197,441
--------- --------- --------- ---------
Gross profit .................................. 14,044 12,727 43,575 44,982
Selling, general and administrative expense ... 11,808 11,613 35,025 35,475
Other (income) expense ........................ 44 41 (169) (137)
--------- --------- --------- ---------
Operating income .............................. 2,192 1,073 8,719 9,644
Interest expense .............................. 3,644 3,857 11,951 11,811
--------- --------- --------- ---------
Loss from continuing operations, before
income taxes ............................. (1,452) (2,784) (3,232) (2,167)
Income tax provision (benefit) ................ (2,247) (876) (204) 376
--------- --------- --------- ---------
Income (loss) from continuing operations ...... 795 (1,908) (3,028) (2,543)
Income (loss) from discontinued operations,
less applicable taxes .................... 13,017 (532) (622) 1,526
--------- --------- --------- ---------
Net income (loss) ............................. $ 13,812 $ (2,440) $ (3,650) $ (1,017)
========= ========= ========= =========
Basic and diluted loss per share:
Income (loss) from continuing operations . $ 260 $ (623) $ (990) $ (831)
Income (loss) from discontinued operations 4,255 (175) (203) 499
--------- --------- --------- ---------
Net income (loss) ........................ $ 4,515 $ (798) $ (1,193) $ (332)
========= ========= ========= =========
Weighted average shares outstanding ........... 3,059 3,059 3,059 3,059
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
- 3 -
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
----- -----
<S> <C> <C>
Cash from operations .......................................... $ 10,419 $ (5,158)
Cash flows provided by (used in) investing activities:
Proceeds from sale of business ........................... 15,113 --
Proceeds from disposition of property, plant and equipment 308 3,560
Acquisition of property, plant and equipment ............. (4,926) (5,805)
Other .................................................... -- 15
-------- --------
Net cash provided by (used in) investing activities .. 10,495 (2,229)
Cash flows provided by (used in) financing activities:
Net proceeds (payments) of revolving lines of credit and
short-term debt ...................................... (22,109) 8,425
Payments of long-term debt and capital leases ............ (939) (1,335)
-------- --------
Net cash provided by (used in) financing activities .. (23,048) 7,090
-------- --------
Decrease in restricted cash and cash equivalents .............. (2,134) (297)
Restricted cash and cash equivalents, beginning of period ..... 3,191 2,607
-------- --------
Restricted cash and cash equivalents, end of period ........... $ 1,057 $ 2,310
======== ========
Supplemental information:
Cash paid for income taxes, net of refunds ............... $ 605 $ 584
======== ========
Cash paid for interest ................................... $ 9,465 $ 8,290
======== ========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
- 4 -
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Business. J.B. Poindexter & Co., Inc. (JBPCO) and its
subsidiaries (the Subsidiaries, and, together with JBPCO, the Company), operate
manufacturing and wholesale distribution businesses. Subsidiaries consist of
Morgan Trailer Mfg. Co., (Morgan), Truck Accessories Group, Inc., (TAG), Lowy
Group, Inc., (Lowy), EFP Corporation, (EFP) and Magnetic Instruments Corp., (MIC
Group).
The consolidated financial statements included herein have been
prepared by the Company, without audit, following the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, the
information furnished reflects all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
results of the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted following such
rules and regulations. However, the Company believes that the disclosures are
adequate to make the information presented understandable. These financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1997 filed with the
Securities and Exchange Commission on Form 10-K.
(2) Comprehensive Loss. As of January 1, 1998, the Company adopted Statement
130, Reporting Comprehensive Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net loss or
stockholder's deficit. Statement 130 requires foreign currency translation
adjustments which, prior to adoption, were reported separately in shareholder's
equity to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130. The components of comprehensive loss for the nine-month periods ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
-------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) ................. $ 13,812 $ (2,440) $ (3,650) $ (1,017)
Foreign currency translation adjustments (64) (31) (136) (110)
-------- -------- -------- --------
Comprehensive income (loss) ....... $ 13,748 $ (2,471) $ (3,786) $ (1,127)
======== ======== ======== ========
</TABLE>
The accumulated foreign currency translation adjustments at September 30, 1998
and December 31, 1997 were deficits of $322,000 and $186,000, respectively.
(3) Inventories. Consolidated net inventories consist of the following (in
thousands):
September 30, December 31,
1998 1997
--------------- -------------
FIFO Basis Inventory:
Raw Materials .......................... $18,266 $14,398
Work in Process.......................... 5,756 6,103
Finished Goods .......................... 7,551 9,459
--------- ---------
Total Inventory .......................... $31,573 $29,960
------- -------
- 5 -
<PAGE>
(4)......Discontinued Operations -
Truck Accessories Group (TAG). TAG comprises two operating divisions:
TAG Manufacturing and TAG Distribution. Effective April 2, 1998, the Company
signed a letter of intent to sell principally all the assets less certain
liabilities of TAG. In anticipation of this transaction, TAG's results of
operations were presented as discontinued operations in the consolidated
financial statements for the periods ended March 31, and June 30, 1998. As of
June 30, 1998, the Company had recorded an estimated loss on disposal of TAG of
approximately $15,271,000, net of applicable income taxes, which included a
provision for estimated operating losses through disposal date of $1,527,000.
Based upon improved operating performance, the Company decided during
the third quarter of 1998, to retain the TAG Manufacturing division and continue
its plan to dispose of the TAG Distribution division. Accordingly, that portion
of the estimated loss on disposal related to the TAG Manufacturing division of
$9,070,000 has been reversed in the accompanying consolidated statement of
operations for the three months ended September 30, 1998. Additionally the
results of operations of the TAG Manufacturing division have been included in
continuing operations for all periods presented.
The divisions of TAG represent a distinct line of business. TAG
Manufacturing produces pickup truck caps and tonneau covers, while TAG
Distribution distributes accessories and pickup truck caps for light trucks
through retail outlets and distribution centers. TAG Distribution's results of
operations continue to be reported as discontinued operations in the
consolidated financial statements for all periods presented. In addition, the
net assets and liabilities of TAG Distribution, which are expected to be
disposed of, have been segregated within the accompanying consolidated balance
sheets as "net assets of discontinued operations."
Condensed financial information related to the TAG Distribution division at
September 30, 1998 and December 30, 1997 is as follows (in thousands):
September 30, December 31,
1998 1997
----------- ----------
Net assets of discontinued operations:
Current assets ................................ $12,341 $11,809
Property, net ................................. 2,551 2,394
Intangible assets ............................. 5,131 6,319
------- -------
Total Assets .................................. 20,023 20,522
Less current liabilities ...................... 6,436 2,985
Less provision for estimated loss on disposal . 6,201 --
------- -------
Net Assets .............................................. $ 8,774 $17,537
======= =======
TAG Distribution revenues were $43,657,000 and $40,050,000 for the nine
months ended September 30, 1998 and 1997, respectively. As of September 30,
1998, the Company had recorded an estimated loss on disposal of TAG Distribution
of approximately $6,201,000, net of applicable income taxes, which included a
provision for estimated operating losses through the disposal date of
$1,527,000. The income (loss) from discontinued operations related to TAG
Distribution, including the reversal of TAG Manufacturing's estimated loss on
disposal, during the three months and nine months ended September 30, 1998, were
as follows (in thousands):
<PAGE>
- 6 -
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
--------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss from TAG Distribution's operations
less applicable income taxes of $0,
$0, $(146) and $0,
respectively ......................................... $ -- $ (1,161) $(1,034) $ (3,450)
Loss on disposal of TAG, including provision
of $1,527 for estimated operating losses
through disposal date, less
applicable income taxes of $0, $0, $(1,893)
and $0, respectively ................................. -- -- (13,378) --
Reversal of loss on disposal of TAG
Manufacturing net of applicable income
taxes of $1,124, $0, $1,124, and $0,
respectively - ...................................... 7,946 -- 7,946 --
-------- -------- -------- --------
$ 7,946 $ (1,161) $ (6,466) $ (3,450)
======== ======== ======== ========
</TABLE>
Losses from operations of TAG Distribution include interest expense of
$1,060,000 and $362,000 related to the borrowings of TAG Distribution under the
Revolving Loan Agreement for the nine months ended September 30, 1998 and 1997,
respectively. The borrowings are anticipated to be repaid using the proceeds
from the sale of TAG Distribution.
In accordance with FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets may be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. During the nine months ended September 30, 1998 and the
years ended December 31, 1997, 1996 and 1995, TAG Manufacturing incurred
operating losses of approximately $0.5 million, $4.7 million and $4.1 million
and $8.8 million, respectively. Even though the operating performance of TAG
Manufacturing indicated that approximately $8.7 million of assets of certain of
its operations may be impaired. An estimate of the future undiscounted cashflows
from the operations of TAG Manufacturing indicates that the carrying values of
the assets would be expected to be recovered over the useful life of the assets.
However, it is possible that the estimate of undiscounted future cashflows could
change in the future requiring recognition of an impairment loss.
Lowy Group. Lowy comprises two operating divisions: Blue Ridge/Courier and
Lowy Distribution. Effective June 8, 1998, the Company signed a letter of intent
to sell certain assets and liabilities of Blue Ridge/Courier, which transaction
closed on August 31, 1998. The Company realized net cash proceeds of
approximately $15.1 million and recognized a pre-tax gain of approximately $6.6
million on the disposal. Additionally, on August 24, 1998, the Company signed a
letter of intent to sell certain assets and liabilities of Lowy Distribution,
which transaction is expected to close in late 1998. The Company expects to
realize proceeds equal to the related assets and liabilities carrying value, and
also has estimated that the division's results of operations will at least break
even through the disposal date.
Blue Ridge/Courier and Lowy Distribution divisions together constituted the
Company's Floor Covering segment, which designed, manufactured and marketed
commercial and residential floor covering. Accordingly, such results of
operations have been reported as discontinued operations in the consolidated
financial statements
- 7 -
<PAGE>
for the periods presented. In addition, the net assets and liabilities, which
are expected to be disposed of, have been segregated within the consolidated
balance sheets as "net assets of discontinued operations."
Condensed financial information related to Lowy at December 31, 1997
(consisting of both the Blue Ridge/Courier and Lowy Distribution divisions) and
Lowy Distribution at September 30, 1998, is as follows (in thousands):
September 30, December 31,
1998 1997
-------------- ---------------
Current assets ............................... $ 9,218 $17,240
Property, net ................................ 416 2,849
Long-term assets ............................. 1,870 2,265
------- -------
Total assets ................................. 11,504 22,354
Less current liabilities ..................... 5,694 6,043
Less long-term liabilities ................... 1,400 2,399
------- -------
Net assets ................................... $ 4,410 $13,912
======= =======
Lowy revenues were $48,708,000 and $53,588,000 for the nine months ended
September 30, 1998 and 1997, respectively. The income from discontinued
operations was as follows related to Lowy (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income from operations of Lowy, less
applicable income taxes of $290, $51,
$793 and $(320), respectively ........................................ $ 766 $ 629 $1,539 $4,977
Gain on disposal of assets of the Blue Ridge/Courier
division, less applicable taxes of $2,295, $0, $2,295,
and $0, respectively ................................................. 4,305 -- 4,305 --
------ ------ ------ ------
$5,071 $ 629 $5,844 $4,977
====== ====== ====== ======
</TABLE>
Net income of Lowy includes interest expense of $360,000 and $462,000
related to the borrowings of Lowy under the Revolving Loan Agreement for the
nine months ended September 30, 1998 and 1997, respectively. The borrowings were
repaid using the proceeds from the sale of the Blue Ridge/Courier division. Net
income of Lowy for the nine months ended September 30, 1997, includes the gain
on the sale of certain real estate of $3,000,000.
(5) Revolving Loan Agreement. Effective May 13, 1998, the Company's principal
revolving credit lenders agreed to increase the maximum borrowings available to
the Company's subsidiaries, under the Revolving Loan Agreement, from $50,000,000
to $55,000,000. At November 11, 1998, the maximum available borrowing was
$49,776,000 and the unused available borrowing capacity under the Revolving Loan
Agreement was approximately $32,937,000.
(6) Income Taxes. The income tax benefit of $204,000 in 1998 represents the
Company's ability to utilize losses from continuing operations to offset income
generated by discontinued operations. The income tax expense of $376,000 in 1997
represents state and foreign income taxes payable. The provision for income tax
differs from amounts computed based on the federal statutory rates principally
due to an increase in the deferred tax valuation allowance relating to deferred
tax assets that may not be realized.
- 8 -
<PAGE>
(7) Contingencies.
Claims and Lawsuits. The Company is involved in certain claims and
lawsuits arising in the normal course of business. In the opinion of management,
the ultimate resolution of these matters will not have a material adverse effect
on the financial position or results of operations of the Company.
Concentration of Credit Risk. Together, two of Morgan's customers
accounted for approximately 52% of Morgan's net sales during the nine months
ended September 30, 1998 and 1997, and 39% and 38% of consolidated net sales,
respectively.
Environmental Matters. Morgan has been named as a potentially
responsible party ("PRP") with respect to its generation of hazardous materials
alleged to have been handled or disposed of at two Federal Superfund sites in
Pennsylvania and one in Kansas. Although a precise estimate of liability cannot
currently be made with respect to these sites, based upon information known to
Morgan, the Company currently believes that it's proportionate share, if any, of
the ultimate costs related to any necessary investigation and remedial work at
those sites will not have a material averse effect on the Company.
(8) Segments Disclosure. In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 131 - "Disclosure About
Segments of an Enterprise and Related Information" ("SFAS 131"). Although SFAS
131 is effective beginning the first quarter of 1998, the Company has elected
not to report segment information in interim financial statements in the first
year of application consistent with the provisions of the statement.
(9) Derivative Instruments and Hedging Activities. In June 1998, the Financial
Accounting Standards Board issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
- 9 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
The Company operates in industries that are dependent on various
factors reflecting general economic conditions, including corporate
profitability, consumer spending patterns, sales of truck chassis and new pickup
trucks and levels of oil and gas exploration.
Effective September 8, 1998, the Company signed a letter of intent to
sell the Lowy Distribution division of Lowy and effective August 31, 1998, the
sale of the Blue Ridge/Courier carpet manufacturing and dyeing division of Lowy
was completed. Accordingly, the results of operations of Lowy have been
classified as discontinued operations in the consolidated statements of
operations. The anticipated sale proceeds from the disposal of Lowy
Distribution's assets approximate their carrying value at September 30, 1998.
The gain on the sale of Blue Ridge/Courier was approximately $6.6 million and
net proceeds from the sale of approximately $15.1 million were used to repay
borrowings under the Revolving Loan Agreement.
TAG comprises two operating divisions: TAG Manufacturing and TAG
Distribution. TAG Manufacturing includes Leer, Century Fiberglass and Raider
Industries. TAG Distribution includes Leer Retail, including Radco Industries
and National Truck Accessories including Midwest Truck AfterMarket (MTA).
Effective April 2, 1998, the Company signed a letter of intent to sell
principally all the assets less certain liabilities of TAG. In anticipation of
this transaction, TAG's results of operations were presented as discontinued
operations in the consolidated financial statements for the periods ended March
31, and June 30, 1998.
During the third quarter of 1998, the Company decided to retain the TAG
Manufacturing division (based upon improved operating performance) and continue
its plan to dispose of the TAG Distribution division. Each of the divisions of
TAG represents a distinct line of business. TAG Manufacturing manufactures
pickup truck caps and tonneau covers, while TAG Distribution distributes
accessories and pickup truck caps for light trucks through retail outlets and
distribution centers. Accordingly, TAG Distribution's results of operations
continue to be reported as discontinued operations in the consolidated financial
statements for all periods presented. In addition, the net assets and
liabilities of TAG Distribution, which are expected to be disposed of, have been
segregated within the accompanying consolidated balance sheets as "net assets of
discontinued operations."
Effective July 1, 1997, the operations of Gem Top, which manufactures
and distributes light truck caps primarily to commercial customers, were
transferred from TAG Manufacturing to Morgan. The following historical financial
results and comparisons for Morgan have not been restated to reflect the
transfer of Gem Top. The operating results of Gem Top were not material to the
operating results of Morgan or TAG Manufacturing. Inter-company sales between
Gem Top and TAG Manufacturing have been eliminated.
Results of Continuing Operations
Nine months ended September 30, 1998 Compared to
Nine months ended September 30, 1997
Net sales increased 11% to $268.3 million for the nine months ended
September 30, 1998 compared to $242.4 million during 1997. The increase was due
primarily to Morgan whose sales increased 18% or $23.1 million. The Company also
recorded sales increases at EFP of 12% or $2.8 million and at MIC of 2% or $0.5
million.
Cost of sales increased 14% to $224.7 million for the nine months ended
September 30, 1998 compared to $197.4 million during 1997. Gross profit
decreased 3% to $43.6 million (16% of net sales) for the first nine months of
1998 compared to $45.0 million (19% of net sales) for 1997. Gross profit at
Morgan decreased 19%
- 10 -
<PAGE>
to $16.2 million (10% of net sales) during the 1998 period compared to $19.9
million (15% of net sales) during 1997.
Selling, general and administrative expense decreased 2% to $35.0
million (13% of net sales) for the nine months ended September 30, 1998 compared
to $35.5 million (15% of net sales) during 1997. The decrease is due primarily
to the reduction in overhead costs at TAG Manufacturing.
Operating income decreased $0.9 million to $8.7 million (3% of net
sales) for the nine months ended September 30, 1998 compared to operating income
of $9.6 million (4% of net sales) in 1997. A $5.8 million improvement in the
operating income of TAG Manufacturing during the period was offset by a $5.7
million reduction at Morgan.
Interest expense increased 1% to $12.0 million for the first nine
months ended September 30, 1998 compared to $11.8 million during 1997.
Short-term borrowings decreased $22.0 million at September 30, 1998 compared to
December 31, 1997, primarily due to the use of proceeds from the sale of Blue
Ridge/Courier, during September 1998, to pay down borrowings.
The income tax benefit of $204,000 in 1998 represents the Company's
ability to utilize losses from continuing operations to offset income generated
by discontinued operations. The income tax expense of $376,000 in 1997
represents state and foreign income taxes payable. The provision for income tax
differs from amounts computed based on the federal statutory rates principally
due to an increase in the deferred tax valuation allowance relating to net
operating losses that may not be realized.
Third Quarter 1998 Compared to Third Quarter 1997
Net sales for the quarter ended September 30, 1998 increased 20% to
$87.9 million compared to $73.4 million for the same period in 1997. The
increase was due primarily to a 26% or $10.2 million improvement in sales at
Morgan. Net sales increased 13% or $2.6 million at TAG Manufacturing, 17% or
$1.4 million at EFP, and 5% or $0.3 million at MIC for the third quarter of 1998
compared to the same period in 1997.
Cost of sales increased 22% to $73.9 million during the quarter ended
September 30, 1998 compared to $60.7 million for the same period in 1997. Gross
profits increased $1.3 million to $14.0 million during the quarter ended
September 30, 1998 compared to $12.7 million during the prior year. Gross
profits as a percentage of net sales were 16% during the current quarter
compared to 17% for the same quarter in 1997.
Selling, general and administrative expense decreased $0.3 million or
2% to $11.8 million during the quarter ended September 30, 1998 compared to
$11.6 million for the same period in the prior year. Selling, general and
administrative expenses were approximately 13% of sales, the same as the third
quarter of 1997.
Operating income increased 100% to $2.2 million (2% of net sales) for
the third quarter of 1998 compared to $1.1 million (1% of net sales) in 1997.
The increase was due primarily to a $2.2 million increase in operating income to
$1.0 million at TAG Manufacturing during the quarter ended September 30, 1998
compared to an operating loss of $1.2 million during in 1997.
- 11 -
<PAGE>
Morgan
Nine months ended September 30, 1998 Compared to
Nine months ended September 30, 1997
Net sales increased $23.1 million or 18% to $154.8 million for the first
nine months of 1998 compared to sales of $131.7 million for the first nine
months of 1997. Through September 1998, net sales included $3.5 million
attributable to Gem Top, transferred to Morgan in July 1997 compared to $0.6
million during the three months ended September 30, 1997. Total unit shipments
increased 12.6% during the 1998 period compared to 1997. An increase of 19%
(2,700 units) in commercial product shipments was partially offset by a 295 unit
decline in the shipment of consumer rental products. The increase in net sales
was due to higher revenue per unit for commercial products and increased unit
shipments. Backlog at September 30, 1998 was $56.7 million compared to $36.7
million at December 31, 1997 and $44.2 million at September 30, 1997. The
increase in backlog reflects continued demand for Morgan products; however,
Morgan depends upon chassis manufacturers for timely delivery of its customers'
chassis. Approximately $12.9 million of backlog at September 30, 1998 is a
result of delayed chassis deliveries.
Cost of sales increased 25% to $139.9 million for the first nine months
of 1998 compared to $112.3 million for the same period in 1997. Gross profit
decreased 19% to $16.2 million (10% of net sales) during 1998 compared to $19.9
million (15% of net sales) during the first nine months of 1997. The decline in
gross profit during 1998 compared to the same period during 1997 is due to
increased material and overhead costs.
Selling, general and administrative expense increased 18% to $12.7
million (8% of net sales) for the first nine months of 1998 compared to $10.8
million (8% of net sales) for the same period in 1997. The increase included
increased selling expense with additional commissions of approximately $0.6
million on higher commercial product sales, year 2000 costs of approximately
$0.3 million, and increases in severance, hiring and relocation costs of $0.2
million due to a management reorganization.
Morgan's operating income decreased $5.7 million to $3.5 million during
the first nine months of 1998 compared to $9.2 million for the first nine months
of 1997.
Third Quarter 1998 Compared to Third Quarter 1997
Net sales increased 26% or $10.1 million to $48.5 million for the third
quarter of 1998 compared to $38.4 million for the third quarter of 1997. Net
sales in 1998 included $1.2 million attributable to Gem Top, acquired by Morgan
in July 1997. The total number of units shipped increased 41.0% during the 1998
period compared to 1997 due to increased demand for commercial products and
improved chassis deliveries.
Cost of sales increased 32% to $44.3 million for the third quarter of
1998 compared to $34.1 million for the same period in 1997. Gross profit
decreased 4% to $4.6 million (9% of net sales) during the third quarter of 1998
compared to $4.8 million (12% of net sales) during 1997. The deterioration in
gross profit as a percentage of sales was primarily due to increased material
and overhead expense.
Selling, general and administrative expense remained flat at $3.7
million (8% of net sales) for the third quarter of 1998 compared to the same
period (at 9% of sales) of 1997. Gem Top's selling, general and administrative
expenses remained flat at $0.2 million (16% of sales) for the third quarter of
1998 compared to the same period (at 19% of sales) of 1997.
Morgan's operating income decreased 9% or $0.1 million to $1.0 million
during the third quarter of 1998 compared to $1.1 million for the third quarter
of 1997.
- 12 -
<PAGE>
Truck Accessories Group - Manufacturing Division
The following discussion excludes the results of the operations of Gem
Top, which was acquired by Morgan in June 1997.
Nine months ended September 30, 1998 Compared to Nine
months ended September 30, 1997
Net third party sales increased $1.7 million or 3% to $64.2 million for
the nine months ended September 30, 1998, compared to $62.5 million, excluding
Gem Top sales of $2.3 million, for the same period in 1997, primarily due to
increases at Century and Raider. Average unit prices increased approximately 6%
at Century, principally due to the introduction of a new product during the
period.
Cost of sales decreased by $0.5 million or 1% to $47.7 million compared
to the same period in 1997. Gross profit increased by $3.3 million or 25% to
$16.5 million (26% of sales) compared to $13.2 million (21% of sales) in the
same period of 1997. Improvements in manufacturing processes, reduction in
rework and returns and lower labor costs at Leer Manufacturing reduced cost of
sales by approximately $2.8 million during the first nine months of 1998.
Indicators of quality, including customer returns, improved by 11% during the
first nine months compared to the same period in 1997.
Selling, general and administrative costs decreased by $2.5 million or
15% to $13.9 million compared to $16.4 million for the same period in 1997. The
decrease is due primarily to the $1.0 million reduction in the administrative
staff and favorable adjustments to warranties, bad debts and workers'
compensation of $0.8 million during the first nine months of 1998.
Operating income increased $5.8 million to $2.8 million for the first
nine months of 1998 compared to an operating loss of $3.0 million for the first
nine months of 1997.
Third Quarter 1998 Compared to Third Quarter 1997
Net third party sales increased $2.6 million or 13% to $22.6 million for
the quarter ended September 30, 1998 compared to $20.0 million during 1997,
primarily due to a 22% increase in sales at Leer.
Cost of sales increased $1.1 million or 7% to $16.8 million for the quarter
ended September 30, 1998 compared to $15.7 million during 1997.
Gross profit increased $1.5 million or 35% to $5.8 million for the
quarter ended September 30, 1998 compared to $4.3 million during 1997. Gross
profit as a percentage of sales increased to 26% as compared to 21% in the same
quarter in 1997. The increase in gross profit margin during the third quarter of
1998 compared to 1997 was primarily due to the effectiveness of product quality
improvements at Leer Manufacturing, new product introductions at 20th Century
Fiberglass during the second quarter of 1998 and reductions in material costs
and warranty charges at Raider.
Selling, general and administrative expenses decreased $0.6 million or
11% to $4.8 million for the quarter ended September 30, 1998 compared to $5.4
million during 1997, primarily due to staff reductions.
Operating income increased $2.2 million to $1.0 million for the quarter
ended September 30, 1998 compared to an operating loss of $1.2 million during
1997.
- 13 -
<PAGE>
EFP
Nine months ended September 30, 1998 Compared to
Nine months ended September 30, 1997
Net sales increased 12% to $27.0 million for the first nine months of
1998 compared to $24.2 million for the comparable period of 1997 due primarily
to increased sales of packaging products and tooling produced by EFP's pattern
division.
Cost of sales increased 9% to $20.8 million during the 1998 period
compared to $19.0 million during 1997. Primarily due to lower material costs and
better overhead absorption on higher volume, gross profit increased to $6.2
million (23% of net sales) for the first nine months of 1998 compared to $5.1
million (21% of net sales) for the first nine months of last year.
Selling, general and administrative expense increased 8% to $3.3
million (12% of net sales) for the first nine months of 1998 compared to $3.0
million (13% of net sales) during the comparable period of 1997.
Operating income increased $0.8 million or 40% to $2.9 million during
the first nine months of 1998 compared to $2.1 million during 1997 due primarily
to the increase in gross profit.
Third Quarter 1998 Compared to Third Quarter 1997
Net sales increased 17% to $9.9 million for the third quarter of 1998
compared to $8.5 million for the comparable period of 1997.
Cost of sales increased $0.9 million to $7.5 million during the third
quarter of 1998 compared to $6.6 million for the comparable period of 1997.
Gross profit increased to $2.4 million (25% of net sales) for the third quarter
of 1998 compared to $1.9 million (23% of net sales) for the third quarter of
1997.
Selling, general and administrative expense increased 18% to $1.2
million (12% of net sales) for the third quarter of 1998 compared to $1.0
million (12% of net sales) during the comparable period of 1997.
EFP's operating income increased $0.3 million to $1.2 million for the third
quarter of 1998 compared to operating income of $0.9 million for the same period
of 1997.
MIC Group
Nine months ended September 30, 1998 Compared to
Nine months ended September 30, 1997
Net sales increased 2% to $22.3 million for the first nine months of
1998 compared to $21.8 million during the comparable period in 1997. The decline
in the price of oil has affected sales and backlog at September 30, 1998.
Backlog at September 30, 1998 was $4.5 million compared to $6.5 million at
December 31, 1997 and $6.8 million at September 30, 1997.
Cost of sales increased 13% to $17.6 million for the first nine months
of 1998 compared to $15.6 million for the first nine months of 1997. The
increase is due primarily to increased sales and material cost increases
associated with a change in product mix. Gross profit decreased to $4.7 million
(21% of net sales) for the first nine months of 1998 compared to $6.1 million
(28% of net sales) for the first nine months of 1997.
- 14 -
<PAGE>
Selling, general and administrative expenses increased to $2.7 million
(12% of net sales) for the first nine months of 1998 compared to $2.4 million
(11% of net sales) for the comparable period of 1997. This increase is due to
increased sales personnel and related costs.
Operating income decreased by $1.8 million to $1.9 million for the first
nine months of 1998 compared to $3.7 million for the first nine months of 1997.
Third Quarter 1998 Compared to Third Quarter 1997
Net sales increased 5% to $6.9 million for the third quarter of 1998
compared to $6.6 million for the comparable period in 1997.
Cost of sales increased 17% to $5.7 million for the third quarter of
1998 compared to $4.9 million for the third quarter of 1997. Gross profit
decreased 31% to $1.2 million (17% of net sales) during 1998 compared to $1.7
million (26% of net sales) during the same period in 1997, due primarily to
higher labor and material costs during the quarter.
Selling, general and administrative expense increased $0.1 million to $0.9
million for the third quarter of 1998 compared to $0.8 million for the third
quarter of 1997.
During the quarter ended September 30, 1998, MIC closed its
unprofitable Houston facility. Closing costs of $0.2 million, incurred during
the quarter, were included in Other Expense.
Operating income decreased 80% to $0.2 million for the third quarter of
1998 compared to $1.0 million for the third quarter 1997.
Discontinued Operations - TAG Distribution
In anticipation of the sale of TAG Distribution Division, TAG
Distribution's results of operations are reported as discontinued operations in
the consolidated financial statements presented. Management has provided $6.2
million for an estimated loss on disposal of TAG Distribution including a
provision for losses through the disposal date, net of applicable taxes.
Nine months ended September 30, 1998 Compared to Nine
months ended September 30, 1997
Net third party sales increased $3.6 million or 9% to $43.6 million for
the nine months ended September 30, 1998 from $40.0 million for the same period
in 1997. At Leer Retail, sales decreased 4% to $26.2 million because of the
closing of six unprofitable stores during the latter part of 1997. Same store
sales increased approximately 5% to $25.2 million from $23.9 million. Wholesale
sales increased 38% or $4.8 million to $17.4 million in 1998 compared to 1997.
The sales increase during 1998 included MTA sales of $5.4 million, which was
acquired in October 1997.
Cost of sales increased by $3.2 million or 12% to $30.0 million
compared to $26.8 million in the same period last year. The operations of MTA,
acquired in October 1997, account for $4.5 million increase in cost of sales for
the first nine months of 1998.
Gross profit increased by $0.4 million or 3% to $13.6 million compared
to $13.2 million in the same period in 1997.
- 15 -
<PAGE>
Selling, general and administrative expenses decreased by $2.0 million
or 12% to $14.2 million in the nine months ended September 30, 1998 compared to
$16.2 million in the same period of 1997. The elimination of the TAG
Distribution administrative headquarters, completed in December of 1997, reduced
expenses approximately $1.8 million compared to the prior year. The closure of
six unprofitable retail stores reduced selling, general and administrative
expenses at Leer Retail by $1.2 million. NTA's selling, general and
administrative expenses increased by $0.8 million or 12 % to $5.5 million in the
first nine months of 1998 compared to $4.7 million in the same period in 1997.
The increase was due to costs of $0.9 million associated with MTA, acquired in
October 1997.
TAG Distribution's operating loss decreased $2.6 million to $0.5
million for the first nine months of 1998 compared to an operating loss of $3.1
million for the first nine months of 1997. The decrease is primarily due the
acquisition of MTA in October of 1997, the elimination of the TAG Distribution
administrative headquarters and the closure of unprofitable retail outlets.
Third Quarter 1998 Compared to Third Quarter 1997
Net third party sales at TAG Distribution increased $1.0 million or 8%
to $14.5 million for the quarter ended September 30, 1998 from $13.5 million for
the quarter in 1997. At Leer Retail, sales increased 5% to $8.7 million for the
quarter ended September 30, 1998 from $8.3 million during 1997. Wholesale sales
increased 33% or $1.4 million due primarily to the October 31, 1997 acquisition
of Midwest Truck Aftermarket Inc.
Cost of sales increased $0.8 million or 8% to $10.0 million for the quarter
ended September 30, 1998 from $9.2 million during 1997.
Gross profit increased $0.2 million or 5% to $4.5 million for the three months
ended September 30, 1998 compared to $4.3 million during 1997.
Selling, general and administrative expense decreased $0.1 or 3% to $5.2
million for the quarter ended September 30, 1998 compared to $5.3 million during
1997. The decrease was due primarily to lower general and administrative
expenses as a result of the closure of TAG Distribution's headquarters and
unprofitable retail stores.
TAG Distribution's operating loss improved $0.4 million to a loss of
$0.6 million for the quarter ended September 30, 1998, compared to an operating
loss of $1.0 million during 1997. The decrease in operating loss was due
primarily to cost reductions in selling, general and administrative expenses.
Discontinued Operations - Lowy
During the quarter ended September 30, 1998, the Company decided to
pursue a plan for selling Lowy Distribution. Additionally, the sale of the Blue
Ridge/Courier division was completed resulting in a gain of $6.5 million.
Consequently, the operations of Lowy have been reported as discontinued
operations in the consolidated financial statements for the periods presented.
Because the assets of Blue Ridge/Courier were sold during the period, the
following relates to the operations of Lowy Distribution, only.
Nine months ended September 30, 1998 Compared to
Nine months ended September 30, 1997
Net sales decreased 5% to $27.9 million for the first nine months of
1998 compared to $29.5 million for the first nine months of 1997 due primarily
to poor third quarter sales of carpet and vinyl products at all locations.
- 16 -
<PAGE>
Cost of sales decreased 5% to $21.6 million for the first nine months
of 1998 compared to $22.7 million for the same period in 1997. Gross profit
decreased 7% to $6.3 million (23% of net sales) for the first nine months of
1998 compared to $6.8 million (23% of net sales) for the 1997 period.
Selling, general and administrative expense decreased 6% to $6.0
million (22% of net sales) for the first nine months of 1998 compared to $6.4
million (22% of net sales) for the first nine months of 1997.
Lowy Distribution sold two warehouse facilities during the first nine
months of 1997 realizing a gain of $3.0 million which was included in Other
Income for the nine months ended September 30, 1997.
Lowy Distribution's operating income decreased $2.7 million to $0.4
million for the first nine months of 1998 compared to $3.1 million for the first
nine months of 1997. Excluding the gain on the sale of the warehouse facility,
operating income rose $0.3 million during the nine-month period of 1998 compared
to 1997.
Third Quarter 1998 Compared to Third Quarter 1997
Net sales decreased 6% to $9.7 million for the third quarter of 1998
compared to $10.3 million for the third quarter of 1997.
Cost of sales decreased $0.3 million to $7.6 million for the third
quarter of 1998 compared to $7.9 million for the third quarter of 1997. Gross
profit decreased 13% to $2.1 million (22% of net sales) for the third quarter of
1998 versus $2.4 million (23% of net sales) for the same period in 1997.
Selling, general and administrative expense decreased to $2.0 million
during the third quarter of 1998 compared to $2.2 million in the third quarter
of 1997.
Lowy Distribution's operating income increased $0.1 million in the third
quarter 1998 compared to breakeven for the third quarter of 1997.
Liquidity and Capital Resources
Operating activities during the nine months ended September 30, 1998
provided cash of $10.4 million compared to using cash of $5.2 million during the
same period in 1997. The investment in working capital increased by $17.2
million during the nine months ended September 30,1998 compared to 1997,
primarily due to a decrease of 57% or $23.5 million in borrowings under the
revolving credit facility.
At November 11, 1998, the Company had total borrowing availability of
$49.8 million, of which $3.3 million was used to secure letters of credit and
finance trade transactions. Additionally, $12.8 million had been borrowed to
fund operations resulting in unused availability of $33.7 million. On August 31,
1998, the Company completed the sale of the assets of Blue Ridge/Courier and
proceeds from the sale of approximately $17.2 million were used to repay
borrowings under the Revolving Loan Agreement.
Capital expenditures for the period of $3.3 million related primarily to
the maintenance of existing capacity primarily at Morgan and TAG Manufacturing.
The Company is pursuing the sale of TAG Distribution and has
accordingly treated the operations of TAG Distribution as discontinued.
Additionally the company has signed a letter of intent to sell the Lowy
Distribution operations of Lowy and therefore, has treated the operations as
discontinued. The anticipated proceeds from the sales will be used to pay down
revolver borrowings and invest in existing operations. The
- 17 -
<PAGE>
results of operations of TAG Distribution and Lowy are not anticipated to
significantly affect liquidity prior to their disposal.
The Company believes that it has adequate resources to meet its working
capital and capital expenditure requirements consistent with past trends and
practices. Management believes that its cash balances and the borrowing
availability under the Revolving Loan Agreement will satisfy the Company's cash
requirements for the foreseeable future given its anticipated additional capital
expenditures, working capital requirements and known obligations. The Company is
in compliance with the terms of the Revolving Loan Agreement.
Year 2000
The Company's operations rely on several internal computer systems and
third party vendor relationships. The Company believes that the Year 2000 issue
could present significant operational problems if not properly addressed. The
Year 2000 issue generally describes the various problems that may result from
the failure to properly process certain dates and date sensitive information by
computer and other mechanical systems.
The Company's plan to resolve the Year 2000 issue involves the
following four phases: assessment, remediation, testing, and implementation.
Based on the recent completed assessment of continuing operations, the Company
determined that it will be required to modify or replace significant portions of
its software and certain hardware at one of its subsidiaries so that those
systems will properly utilize dates beyond December 31, 1999. The Company
expects to have all remediated systems fully tested and implemented by September
30, 1999. The Company presently believes that with modifications or replacements
of existing software and certain hardware, the Year 2000 issue can be mitigated.
The Company has queried its significant suppliers and subcontractors
that do not share information systems with the Company (external agents). To
date, the Company is not aware of any external agent with a Year 2000 issue that
would materially impact the Company's results of operations, liquidity, or
capital resources.
The Company will utilize both internal and external resources to
reprogram, or replace, test, and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project is
estimated between $1.0 million and $2.0 million and is being funded through
operating cash flows. To date, the Company has incurred approximately $300,000
related to all phases of the Year 2000 project.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. However, the Company
currently has no contingency plans in place in the event it does not complete
all phases of the Year 2000 program. The Company plans to evaluate the status of
completion in March 1999 and determine whether such a plan is necessary.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made following the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties. These include without limitation the following: (1) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (2) any sale of a business unit is
subject to many factors including terms considered satisfactory to the
management of the Company; and (3) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits. The following exhibits are filed herewith: 10.113. Asset Purchase
Agreement by and among Lowy Group, Inc., J.B. Poindexter & Co., Inc. and
Blue Ridge Acquisition Company, LLC dated August 31, 1998.
b. Reports on Form 8-K. The Company filed the following reports on Form 8-K
during the quarter for which this Form 10-Q is filed: None
- 19 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J.B. POINDEXTER & CO., INC.
(Registrant)
Date: November 13, 1998 By: S. Magee
-----------------------------------------------
S. Magee, Chief Financial Officer and Director
By: R.S. Whatley
----------------------------------------------
R. S. Whatley, Principal Accounting Officer
- 20 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE 1998 3RD
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,057
<SECURITIES> 0
<RECEIVABLES> 34,525
<ALLOWANCES> 797
<INVENTORY> 31,573
<CURRENT-ASSETS> 69,868
<PP&E> 38,888
<DEPRECIATION> 0
<TOTAL-ASSETS> 146,023
<CURRENT-LIABILITIES> 51,997
<BONDS> 102,554
0
0
<COMMON> 16,486
<OTHER-SE> (25,013)
<TOTAL-LIABILITY-AND-EQUITY> 146,023
<SALES> 268,317
<TOTAL-REVENUES> 267,317
<CGS> 224,742
<TOTAL-COSTS> 224,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,951
<INCOME-PRETAX> (3,232)
<INCOME-TAX> 204
<INCOME-CONTINUING> (3,028)
<DISCONTINUED> (622)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,650)
<EPS-PRIMARY> (1.193)
<EPS-DILUTED> (1.193)
<FN>
OTHER EXPENSES ARE INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE ON
THE FINANCIAL STATEMENTS.
</FN>
</TABLE>
